OPINION, P6 COMPANIES, P5 SUNIL JAIN Oil policy must focus on driving output, not govt revenue INTERNATIONAL, P4 A GULATI & S SAINI LOW-COST FLYING SURPRISE MEETING WITH SOUTH A national agri market needs significant reforms and improved mandi-level infrastructure Rahul Bhatia-led IndiGo among top 5 cheapest airlines in the world North Korea’s Kim reaffirms commitment to full denuclearisation NEW DELHI, MONDAY, MAY 28, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL.XLIV NO. 74, 16 PAGES, `6.00 (PATNA `6.00, RAIPUR `7.00) P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E ● ORDINANCE ED wants Nirav Modi assets seized immediately PRESS TRUST OF INDIA New Delhi, May 27 IN THE NEWS RBI guv to brief House panel on mounting NPAs RBI GOVERNOR Urjit Patel will appear before a parliamentary panel on June 12, of which former prime minister Manmohan Singh is a member, to brief them about banking frauds and mounting nonperforming assets (NPAs), reports PTI. Patel will talk about the conditions of nationalised banks in view of the rising NPAs and the future course of action to tackle bank frauds. Hitting the road Prime Minister Narendra Modi talks to transport minister Nitin Gadkari (right) and others after inaugurating the first leg of the Delhi-Meerut expressway project in New Delhi on Sunday. He also launched the 135-km Eastern Peripheral Expressway in Baghpat, UP Q4 EARNINGS SEASON Consumer sectors push India Inc on recovery path WITH THE EARNINGS season coming to an end, it is clear India Inc is making a recovery with the consumer pack leadingtheway.ResultsforQ4FY18 come off a favourable base — Q4FY17was the first full quarterpost-demonetisation—and havebeenjustaboutinkeeping with expectations. The aggregate numbers — top-linegrowthinparticular— are skewed by the presence of severalheavyweightcommodity players; elevated prices of metals, crude oil and other commodities have driven up revenues. However, for users the higher input costs have pressured margins. Nonetheless better con- QuickPicks Local content for Brezza, Baleno JAPANESE AUTO major Toyota plans to up local content of the Baleno and Vitara Brezza models, which it will receive from compatriot Suzuki for selling in India under their partnership to make them price-competitive, a senior official told PTI. The likely changes to be brought “are still work in progress”. PAGE 5 Wi-Fi adds wings to BharatNet THE LAUNCH of Wi-Fi hotspots under the rural broadband project ‘BharatNet’ has seen a 190% jump in data usage to 95 terabyte in six months of the service, an official report said, reports PTI. The government has completed BharatNet rollout in over 1 lakh gram panchayats and aims to cover the rest by the year-end. PAGE 2 Net profit RM to sales Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY18 FY18 152.51 138.96 21.74 9.41 6.87 -25.22 39.79 (bps, chg y-o-y) 225.75 151.25 (% chg y-o-y) 25.50 1.10 15.79 15.08 11.87 OPM (bps, chg y-o-y) -87.34 FE BUREAU Mumbai, May 27 Net sales (% chg y-o-y) 8.40 Top-line growth skewed due to elevated prices of metals, crude and other commodity products Q1 Q2 Q3 Q4 FY18 Q1 Q2 Q3 Q4 FY18 Sample of 942 companies (excluding banks, financials, OMCs ) Source: Capitaline sumer spends have driven up sales of both durables and staplesasreflectedinthevolumes forcars,two-wheelersandconsumer staples. The pick-up in rural demand is visible. The management at Hero MotoCorp, for instance, believesthedemandoutlookis encouraging and that the twowheelerindustryshouldreport avolume increase of 9-10% in 2018-19. Given inflationary pressures, management commentary suggests price hikes are imminent. Hindustan Unilever,forinstance,reported a strong set of numbers with the volumes up 11% y-o-y. Management commentary, analysts say, sounded a shade THE ENFORCEMENT DIRECTORATE (ED) is set to move a special court in Mumbai to seek permission for “immediate confiscation” of about `7,000-crore assets of designer-diamond jeweller Nirav Modi under the recently promulgated Fugitive Economic Offenders Ordinance. The agency,empowered by the Union government to enact the new power in the country, will seek an official declaration to categorise Nirav Modi as a “fugitive” based on its prosecution complaint (chargesheet) filed before a special court in Mumbai last week under the PreventionofMoneyLaundering Act (PMLA). On May24,the ED had filed its first chargesheet in the over $2-billion PNB fraud case involving Nirav and his associates stating that over `6,400crorebankfundswereallegedly laundered abroad to dummy companies byhim and others. A total of 24 accused have been listed in the chargesheet, filed under section 45 of the PMLA. Continued on Page 2 UNDER STRESS Govt wants SBI to buy IDBI Bank’s toxic loans Biggest lender not too keen as it feels NPAs are being offered at very unattractive prices SHAYAN GHOSH Mumbai, May 27 THE GOVERNMENT IS exploringanexercisetomoveachunk of IDBI Bank’s stressed loans to thebooksofStateBankofIndia (SBI). Understandably, the top management at the country’s biggest lender is unhappy with the idea of toxic assets being foistedonthem,sourcestoldFE. The government, FE has learnt, would like SBI to ‘buy’ both non-performing assets (NPAs) and standard stressed loans — loans which are not NPAs yet but for which promoters have missed the repayment deadlines. ThebigconcernthatSBIhas isthatthetoxicassetsarebeing offered by IDBI Bank at very unattractiveprices.IDBIBankis willing to take haircuts, on the salesoftheloans,ofonlyaround 20-50%. Given the quality of theassets,theSBImanagement believes the discounts need to be much higher,somewhere in the region of 70-85%. less optimistic than was expected, possibly because of rising crude oil prices.At Tata Motors, for instance, the managementattributedthemissin standalone operating margins partly to commodity cost increases. For a sample of 942 companies (excluding banks and financials), revenues have risen 15% not overly impressiveintheseinflationarytimes. With the increase in expenditure outpacing that in the top line, operating profit margins have contracted slightly. If Tata Steel and Vedanta are excluded from the sample, the rise in net profits is 14.5% year-on-year, much smaller than the 22% in Q3FY18. Among the bigger disappointments has been Tata Motors whose profits were down 66% year-on-year thanks to some impairments following changes in the accounting policy. Jaguar Land Rover, which is facing headwinds in its key markets such as the UK and Europe reportedrevenuesthatwereup just 4% y-o-y. Continued on Page 2 REVENUE MATTERS Has GST left state govts worse off? Not really Most states’ pre-GST tax growth was lower than the 14% guaranteed under GST regime SUMIT JHA & PRASANTA SAHU New Delhi, May 27 IT MAYAPPEAR that the goods and services tax (GST) hasn’t given a big boost to states governments’ tax revenue (or for that matter,the Centre’s) so far, butthere’slittlereasonforthem to complain.The constitutionally guaranteed compensation mechanismunderGSTensures, in effect,a 14% annual growth in the states’revenue.Acursory look at their past performance will reveal that most states had previously registered growth rates much lower than 14% Growth in states' own tax revenue (OTR)^ (%, y-o-y) 14 12 10 8 6 4 2 0 FY15 FY16 FY17 ▪States are assured 14% annual growth in GST revenue under a 5-year compensation mechanism ▪For July 2017-Feb 2018 period, `41,147 crore (14% of S-GST al du taka UP tra al a MP r a collected) has been ng sh Ke ra Be i l N ar n a disbursed as such m ha W K Ta Ma compensation. So, the ^OTR includes taxes subsumed in GST (~60%) and other states' GST revenue taxes such as excise on alcohol, stamp duty, VAT on growth has been flat auto fuels etc. from the taxes that later collapsed into GST. The chart shows how some states’ own tax revenue (OTR) —amajorcomponentofwhich (roughly 60% in most cases) are levies like state VAT, entry tax,octroi,purchasetax,luxury tax etc that are nowsubsumed in the GST — grew in the three years priorto the launch of the new comprehensive indirect tax. OTR is a good proxy for GSTand the two’s growth rates are comparable. Recently, several non-BJP ruled states including Kerala, Andhra Pradesh, Punjab and WestBengalblamedthe‘shabby implementation’of the GST for their lower-than-expected tax collections and sought amendments to the terms of reference of the 15th Finance Commission to factor in the impact of GSTon the states’revenues. Continued on Page 2 NEW DELHI IN BAD BOOKS MARCH 2017 Fund-based Non-fund outstanding exposure MARCH 2018 Fund-based Non-fund outstanding exposure 5/25 of which, SMA 7,478 3,306 1,123 0 7,783 40 1,543 0 Restructured of which, SMA 10,588 9,181 4,973 3,499 3179 1153 1,829 172 S4A of which, SMA 1,008 1,008 415 415 837 121 673 0 SDR of which, SMA 4,447 3,086 975 868 0 0 SMA 1 SMA 2 2,466 7,157 1,046 1,166 5669 1313 1,645 17 33,144 26,204 9,698 6,994 18781 8296 5,708 1,835 Total of which, SMA : Source: IDBI Bank; SMA: Special mention account (denotes delayed repayment) SDR: Strategic debt restructuring, S4A: Scheme for sustainable structuring of stressed assets Last week, MK Jain, MD & CEO,IDBI Bank,confirmed the lender’s board had approved a proposaltosell`21,397croreof loans,comprising 30 corporate accounts.“Obviously,there’llbe a process and in a fewmonths... we have to run that process and then we will see how much we are able towork out,” he said. A sale of toxic assets would makeIDBIBank’sbalancesheet cleanerandthelendermoreeligible for an investment or takeover by a strategic investor. While the government,which owns80.96%ofIDBIBank,has been trying to offload a stake in it for some time now,the effort has been unsuccessful. Notable loans up for sale include IDBI Bank’s loans to Air India, GMR Hyderabad Vijayawada Expressways, KSK Mahanadi Power and a clutch of power projects. As on March 31,2018,IDBI Bank’s NPAs were at a staggering `55,588 crore, of which the standard stressed loans accounted for `10,131 crore (fund and non-fund based). Continued on Page 2
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